This report has cleared the Treasury Inspector
General For Tax Administration disclosure review process and information
determined to be restricted from public release has been redacted from this
document.

The
Defense Contract Audit Agency (DCAA) performed an audit regarding the contractor’s
compliance with the Cost Accounting Standards (CAS) and the Federal Acquisition
Regulation (FAR).The purpose of the
examination was to determine if the contractor complied with the requirements
of CAS 418 (Allocation of Direct and Indirect Costs) and any applicable FAR
Part 31 requirements.By performing
Federal Government contracts covered by Government regulations, the contractor
asserts that its cost accounting practices comply with the requirements of the
CAS.

The
DCAA opined that the contractor complied in all material aspects with the
requirements of CAS 418 for Fiscal Year (FY) 2004.However, the DCAA noted one area in which the contractor was in
noncompliance with CAS 418 for FY 2003 and prior years.The contractor allocated facility costs
using an allocation base of labor hours and subcontract hours.According to the DCAA, the amount of space
and the associated facility cost has a limited causal/beneficial relationship
to the number of hours worked.

The
DCAA recommends that the contractor use a facility allocation base of square
footage.The square footage provides a
closer causal/beneficial relationship to the space occupied and associated
cost.The contractor concurred and
demonstrated that it corrected the noncompliance for FY 2004 and forward.The contractor verbally agreed to work with
the DCAA during the FY 2003 and prior incurred cost audits to identify the cost
impact of the noncompliance.

The
information in this report should not be used for purposes other than those
intended without prior consultation with the Treasury Inspector General for Tax
Administration regarding their applicability.

If you have any questions, please
contact me at (202) 622-8500 or John R. Wright, Director, at (202) 927-7077.

Attachment

NOTICE:

The Office of Inspector General for Tax Administration has
no objection to the release of this report, at the discretion of the
contracting officer, to duly authorized representatives of the contractor.

The contractor information contained in this report is proprietary
information.The restrictions of 18
U.S.C. § 1905 must be followed in releasing any information to the
public.

This report may not be released without the approval of
this office, except to an agency requesting the report for use in negotiating
or administering a contract with the contractor.